All posts by Financial Independence Hub

Book Review: Retirement Income for Life (3rd edition)

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ECW Press

By Michael J. Wiener

Special to Financial Independence Hub

Actuary Frederick Vettese has a third edition of his excellent book, Retirement Income for Life: Getting More Without Saving More.

He explains methods of making your retirement savings produce more income over your entire retirement.

These methods include controlling investment fees, optimizing the timing of starting CPP and OAS pensions, annuities, Vettese’s free Personal Enhanced Retirement Calculator (PERC), and using reverse mortgages as a backstop if savings run out.

This third edition adds new material about how to deal with higher inflation, CPP expansion, new investment products as potential replacements for annuities, and improvements to Vettese’s retirement calculator PERC.  Rather than repeat material from my review of the second edition, I will focus on specific areas that drew my attention.

Inflation

“We can no longer take low inflation for granted.”  “An annuity does nothing to lessen inflation risk, which should be a greater worry than it was before the pandemic.”  “We could have practically ignored inflation risk before COVID hit but certainly not now.”

It’s true that inflation is a potential concern for the future, but it’s wrong to say that it was okay to ignore inflation in the past.  Not considering the possibility of inflation rising was a mistake many people made in the past.  We were lulled by many years of low inflation into being unprepared for its rise starting in 2021, just as many years of safety in bonds left us unprepared for the battering of long-term bonds when interest rates rose sharply.

Inflation risk is always present, and financial planners who have treated it as a fixed constant were making a mistake before inflation rose, just as they would be wrong to do so now.  This underappreciation of inflation risk is what causes people to say that standard long-term bonds (with no inflation protection) are safe to hold to maturity.  In fact, they are risky because of inflation uncertainty.

People’s future spending obligations are mostly linked to real prices that rise with inflation, not fixed nominal amounts.  The uncertainty in future inflation should be respected just as we respect uncertainty in stock market returns.

Maximizing retirement income

Vettese does a good job of explaining that things like CPP, OAS, and annuities provide more income now because they offer your estate little or nothing after you die.  To make full use of this book, you need to understand this fact, and “you have to commit to the idea that your main objectives are to maximize your retirement income and ensure it lasts a lifetime.”

Spending shocks

Retirees should “set aside somewhere between 3 percent and 5 percent of their spendable income each year, specifically to deal with spending shocks.”  “This reserve might not totally cover all the shocks that people … might encounter, but it will definitely soften their impact.”

It’s easy to plug a smooth future spending pattern into a spreadsheet, but real life is much messier than this.  I’ve seen cases of retirees choosing to spend some safe percentage from their savings while also expecting to be able to dip in anytime something big and unplanned for comes up.  This is a formula for running out of retirement savings early.

Retirement income targets

In this third edition, Vettese assumes that retiree spending will rise with inflation until age 70, then rise one percentage point below inflation during one’s 70s, two percentage points below inflation from age 80 to 84, then 1.8% below at 85, 1.6% below at 86, 1.4% below at 87, 1.2% below at 88, 1% below at 89, and rising with inflation again thereafter.

This plan is based on several academic studies of how retirees spend.  I don’t doubt the results from these studies, but I do have a problem with basing my plan exclusively on the average of what other people do.  The average Canadian smokes two cigarettes a day.  Does that mean I should too?

The academic studies mix together results from retirees who spent sensibly with those who overspent early and were forced to cut back.  I don’t want to base my retirement plan partially on the actions of retirees who made poor choices.  Similarly, I prefer to base my smoking behaviour on those Canadians who don’t smoke. Continue Reading…

How to Maximize Retirement Income with Hobbies

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In retirement, hobbies, believe it or not, can seamlessly transition into income-generating ventures: thus presenting an opportunity for older adults to monetize their passions. Whether it’s woodworking, photography, gardening, or crafting, the key lies in recognizing the market demand for these skills or products and strategically positioning oneself to capitalize on it. Here’s a quick look on discovering how collecting and small businesses can boost your finances in your later years.

 

Image Adobe Stock/Pikselstock

By Dan Coconate

Special to Financial Independence Hub

Retirement offers a perfect time to turn hobbies into profitable ventures. Many retirees seek ways to supplement income through hobbies that provide both enjoyment and financial rewards.

Choosing hobbies with financial benefits allows you to maximize retirement income with hobbies while staying engaged in activities you love. The right hobby can provide personal fulfillment and a steady income stream that supports your retirement goals.

Explore Collecting as an Investment

Collecting serves as one of the most effective ways to generate income. Collectibles like vintage items, rare artifacts, and diecast car models can appreciate over time. Market trends and knowledge about item values help collectors make smart investment decisions.

Limited-edition diecast car models typically increase in value, offering a return on investment. Collectors who stay informed about market demand can identify items with the most potential for appreciation. Adopting eco-friendly collecting practices for diecast model cars enhances the long-term value of your collection and supports environmental conservation.

Turn Hobbies into a Small Business

Starting a small business based on a hobby provides another income source. Retirees can transform passions like crafting, gardening, or baking into profitable enterprises. Selling handmade goods, plants, or homemade treats on platforms like Etsy or at local markets offers a steady income stream.

Consider expanding your hobby-based business by offering workshops or classes. Teaching others how to create or maintain their own collections or crafts can generate additional income. For example, a retiree who enjoys gardening can teach a course on growing and maintaining a garden.

Monetize Knowledge and Expertise

Sharing knowledge and expertise related to your hobbies can also generate income. Retirees can offer workshops, create online courses, or write e-books to teach others about their hobbies.

This method monetizes your passion and keeps your mind active and engaged. For example, if you have extensive knowledge of vintage car models, you could create an online course or write a book about the history and intricacies of collecting these items.

Invest in Appreciating Assets

Hobbies that involve acquiring appreciating assets, such as art collecting, antique restoration, or wine collecting, offer financial rewards over time. These assets often gain value as they age, providing an additional source of income in retirement. Staying informed about market trends and seeking expert advice ensures that your investments yield the best possible returns. Continue Reading…

Market Forecasts: Potential Impacts of Trump’s Victory on U.S. Stocks, Global Markets, and Crypto

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Image by Unsplash

By Toby Patrick

(Special to Financial Independence Hub)

Donald Trump is poised once again to become the president of the United States, becoming only the second president to be reelected after leaving the White House. The last time this happened Grover Cleveland was celebrating his second stint as president from 1893 to 1897.

Two world wars, a Great Depression, and 23 presidents later, it’s safe to say the world looks very different.

Cleveland’s second stint in office began with a decline in the New York stock market in what was known as the ‘Panic of 1893’. Fast forward over 130 years and the U.S. election is still closely linked to the performance of the U.S. stock market. Only this time we’re talking tariffs, tech companies, and cryptocurrencies. 

This article will explore what a Trump victory could mean for markets around the world.

What does Trump’s Victory mean for the U.S. Stock Market?

The general consensus is that Donald Trump’s victory will be good for businesses and the U.S. stock market. If the immediate reaction on the 6th of November is anything to go by, this would be true. Many U.S. shares hit record highs and the S&P surged by around 2.5% as investors bet on Trump’s pro-business policies.

At the heart of this initial boom were companies that stand to benefit from Trump’s hard-hitting tariffs that are to be imposed on international imports. Take the Elon Musk-owned Tesla for example. The world’s richest man acted as the President’s mouthpiece in the run-up to the election, and it’s easy to see why.

Not only do Trump’s policies favor high-net-worth individuals, but his threatened 60% tax on Chinese imports would essentially burden the competition to American-owned businesses. Tesla’s share price subsequently rose to a yearly high as news of Trump’s win filtered in.

On the flip side, Trump’s tariffs might not be good news for all American stocks. Large tech corporations rely heavily on Chinese imports. Increased costs could impact the share price of the “Magnificent Seven” stocks while also seeing the consumer pick up the cost through higher prices for electronic goods.     

What does the Trump Victory mean for the Global Stock Market?

Generally speaking, if a Trump victory is good for the U..S economy, it’s good for major global corporations that export to the U.S. Initial optimism across the rest of the world mirrored that in the U.S. However, unlike the U.S., the euphoria was dying out by Wednesday as investors realized the implications of the tariffs mentioned above and what they could mean for international trade.

While China has been threatened with the strictest of Trump’s tariffs, a 10% tax on all U.S. imports would impact Europe too. Take the U.K. for example. Rolls-Royce is one of the world’s biggest manufacturers of aircraft engines and heavily exports to the U.S. While companies like this may benefit from an upswing in the American economy, this could be wiped out by increasing taxes. 

This view would line up with performance too. Rolls-Royce Holdings initially rose as the news of a Trump victory filtered in before sharply declining to pre-election prices as investors possibly started to consider the future of international trade.

What does the Trump Victory mean for Cryptocurrencies?

Today, it’s becoming increasingly common for investors to look beyond traditional stock markets when it comes to investing. One of the most common alternatives, and a big talking point throughout the election campaign, is Bitcoin and other cryptocurrencies. Trump was seen as the pro-crypto option, publicly stating his positive view on crypto and even previously being involved in the promotion of NFTs. Continue Reading…

Using Collectibles as a Hedge against traditional Market Volatility

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Image by Unsplash: Mick Haupt

By Devin Partida

Special to Financial Independence Hub

Today’s markets are difficult to navigate.

Keeping up with traditional market volatility can be difficult due to constantly changing market indexes and financial trends.

So, how do you stay afloat? To diversify your portfolio with assets that won’t move with the market, invest in collectibles.

What is Considered a Collectable?

Has anything been handed down to you as a generational gift? How about a piece of memorabilia from your favorite band or sports team? If these items are considered valuable due to rarity, historical significance or simple worth, they are considered collectibles.

Collectibles come in all shapes and sizes. From the smallest coins to the biggest cars, they might make valuable investments. Here are typical examples:

Art

One of the most common collectibles, art comes in many different forms. If you have a painting, sculpture or other piece that you think is valuable, you can research your art through museums or online collections.

Coins

Coin collecting is a centuries-old hobby. Coins are small and easy to access, making them an excellent place for beginners to start. Though tiny, they can be highly valuable. The 1943 Lincoln Head Copper Penny was once just a penny but now sells for over $204,000.

Sports Memorabilia

With new stars emerging every year, sports memorabilia will never go out of style. The market for sports collectibles is increasing in value for current sports stars like LeBron James and Steph Curry, alongside Hall of Famers and older sports legends.

Benefits of Investing in Collectibles

Investing in collectibles can bring various benefits — to your wallet and future. Here are four positive impacts:

1. Retain Value during Market Downturns

Volatility occurs when the market experiences dramatic price changes. When stocks change and prices shift, collectibles retain value because they are not solely based on the economy. Collectibles often maintain historical resilience, meaning their historic worth protects them during downturns.

2. Generate Return on Investment (ROI)

Collectibles can yield a great ROI. If you know the value of your collectibles, budget appropriately and care for your items, they could be worth a lot. Most collectibles appreciate around 10% each year, contributing to your financial security.

3. Enjoy a New Hobby

Although collectibles can be used as a financial strategy, they also make a fun hobby. What is something that interests you? Everyone has something that fascinates them, and almost anything can be collected. With collectibles, making smart financial investments can be more exciting.

4. Diversify your Portfolio

Investing in multiple assets is a smart way to protect yourself — and your money. Diversification mitigates unsystematic risks that could occur when the market shifts. Using collectibles along with traditional investments gives you more protection against volatility.

How to make successful Collectible Investments

Collectibles provide many financial benefits, but they also come with risks. Before starting your collection, understand the necessary steps to take and things to watch out for.

Make informed purchases

Do your research first if you want to start a collection or purchase a single item. When investing in online stock, people use investing apps to help them make smart decisions and avoid fraud. In-person investments require the same safety measures. Sellers could trick you into spending money on counterfeit items, so be smart when investing.

Understand Liquidity

Liquidity refers to how quickly an investment can be sold or turned into cash without impacting its price. Although collectibles gain value over time, they are meant to be long-term assets. Unlike stocks and bonds, which can be converted to cash in 1-2 days, collectibles may take years. This doesn’t mean you shouldn’t invest in collectibles — it just means you must be aware of timelines.

Integrate Collectibles into a broader Investment Strategy

Collectibles are a great way to diversify your portfolio as an additional form of investment. You should never rely on one asset, so don’t entirely count on your collectible to secure you financially. Practice safe investing habits by creating a plan and budgeting accordingly. Continue Reading…

What Fritz Gilbert learned writing 400 blogs on Retirement

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TheRetirementManifesto.com

 

By Fritz Gilbert, TheRetirementManifesto

Special to Financial Independence Hub 

On April 12, 2015, I published my first post.

In the nine years since I’ve kept writing… and writing…and writing.

I’ve published 428 articles about retirement (see my Archives page).  If you do the math * …

…I’ve written the equivalent of 11 books over the past 9 years. *

(* The Math: 1,500 words per post x 428 posts = 642,000 words.  The average 200-page book is 60,000 words, so that’s ~ 10 books.  Add in the actual book I wrote, and it’s equivalent to 11 books in 9 years.)

And yet, with all of the writing, I’ve missed something.

I’ve never taken the opportunity to step back and think about what I’ve learned from all of my writing.

During our recent RV trip to the Ozarks, I took some time to reflect, and today I’m sharing the most important things I’ve learned through my years of writing articles about retirement.

I suspect the most important lesson may surprise you.  But I’m getting ahead of myself…

I’ve written the equivalent of 11 books in the past 9 years, all on retirement. What’s the most important thing I’ve learned in the process? Share on X

What I’ve Learned Writing 400 articles about Retirement

Reflecting on the past 9 years of writing has been an interesting trip down memory lane.

  • The first 3 years, as I was preparing for retirement.
  • The middle 3 years, as I was making the transition.
  • The final 3 years, as I figured it out.

It’s all there.

The 428 articles are like pebbles I’ve sprinkled on the trail, helping those in my footsteps find their way.  I’m thankful I decided to experiment with blogging.  It’s turned into something I love.

But what have I learned?

Image created by Fritz Gilbert on Pinterest

What I’ve Learned about Retirement

  • Retirement is Complex:  Any topic that can fill 11 books has more layers than an onion. Don’t underestimate how complex retirement is.  Yes, we all expect the financial complexity (Bucket Strategies, Roth Conversions, Safe Withdrawal Rates, Estimated Quarterly taxes, Asset Allocation, etc.).  What’s been more surprising to me is the complexity behind the non-financial aspects of retirement.  Working through your experiments to determine how to replace all those non-financial aspects you once received from work (Sense of Identity, Purpose, Structure, Relationships).  As complex as the financial issues are, I would argue the non-financial aspects are more so. Be prepared for ebbs and flows as you go through your retirement transition, you’re entering a maze that’s more complex than most people realize.
  • Retirement can be Difficult:  I’ve gotten hundreds of emails from readers telling me their stories, and I’ve read every one.  Many are stories of the difficulties you’re having adjusting to retirement.  Your stories led me to research the Four Phases of Retirement and realize how blessed I was to be in the 10-15% of retirees who skip the dreaded Phase II.  As you’ll read in the next bullet, I’m convinced there’s a proven way to make retirement less difficult, and I’m fortunate that I chose the right path.
  • There are Proven Ways to Make it Easier:  I was 3 years from retirement when I started this blog.  I’d seen some of my friends struggle with the retirement transition, and I was obsessed with learning why some people have great retirements, whereas others struggle. I was motivated to find the path that led to success and was fortunate to discover it. I’m convinced it wasn’t merely luck, but rather a result of the extensive planning my wife and I did in my final few years of work.  If there’s one trick I’ve learned to make retirement less difficult, it’s the importance of putting in the work to prepare for the transition before you cross The Starting Line. Focus on the non-financial aspects as much (or more) as you do the financial ones.  To understand how I approached the challenge, check out The Ultimate Retirement Planning Guide, which lays out all the steps starting 5 years before you retire.
  • Retirement Changes with Time:  I’ve often said that retirement is like marriage – you never really know what it’s like until you do it.  As I thought about what I’ve learned from writing so many articles about retirement, I realized there’s another parallel between marriage and retirement.  Just as your marriage will evolve over the years, so too will your retirement.   The honeymoon is great, but it doesn’t last forever.  Working through the challenges that surface is one of the fun parts of both marriage and retirement.  No retirement (or marriage) is perfect, but there’s a lot you can do to make it the best experience possible.  Learn to experiment, learn to follow your curiosity, and learn to maintain a positive attitude.  If there’s one piece of advice I’d give to help you deal with the changes that occur throughout your retirement, it is to embrace, nurture, listen to, and follow your curiosity wherever it leads.
  • Retirement can be the Best Phase of your Life:  We all want great retirements, right?  I’m grateful that retirement is the best phase of my life.  Many of you can say the same.  But …. there is a large percentage of folks who can’t.  If you’re struggling, I encourage you to study those in the first camp.  Listen to what they talk about, and observe what they do.  Chances are good you won’t hear much talk about money.  As I wrote in The 90/10 Rule of Retirement, if you’ve done your planning correctly you won’t worry much about money after you retire.  By studying the 72% of happy retirees,  you’ll find the common themes of Curiosity, Purpose, Relationships, Fitness, and Planning.   Focus on doing those things well, and you’ll find, like many others, that retirement can be the best years of your life. It’s interesting to realize how many of those commonalities relate to the non-financial aspects of retirement.  In my experience, it’s in those areas where you’ll find true joy. Continue Reading…